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Pardo v. Mecum Auction, Inc.

United States District Court, N.D. Illinois, Eastern Division

February 18, 2014

ISAAC PARDO, Plaintiff,
v.
MECUM AUCTION, INC., WILLIAM MULLIS, and JAN MULLIS, Defendants.

MEMORANDUM OPINION AND ORDER

JOHN J. THARP, Jr., District Judge.

Plaintiff Isaac Pardo, a New York resident and Corvette enthusiast, purchased a "highly prized, rare classic Corvette"-a 1967 black coupe-at the Bloomington Gold Auction in St. Charles, Illinois. The vehicle was part of a collection of Corvettes formerly owned by William and Jan Mullis before they sold the cars to Mecum Auction, the operator of the Bloomington Gold Auction. Pardo discovered within minutes of his winning bid that the car was a fake; he learned later that it was in fact "an inferior red 1964 Corvette made out to be a 1967 black Corvette."

On September 6, 2011, Pardo sued the Mullises, among other defendants, in the U.S. District Court for the Eastern District of Pennsylvania, claiming that they violated the Illinois Consumer Fraud and Deceptive Practices Act ("ICFA") and various common-law fraud doctrines. The Mullises never answered or appeared, and on May 7, 2012, the clerk's office entered a default as to the Mullises under Federal Rule of Civil Procedure 55(a). Subsequently, the district court concluded that it lacked personal jurisdiction over defendant Mecum Auction and that venue was improper in the Eastern District of Pennsylvania, and on September 18, 2012, it transferred the case to this Court. However, in its opinion transferring the case, the district court noted that it had not, and had not been asked to, enter a default judgment against the Mullises, which would require a motion and a prove-up of damages. See Mem. Op., Dkt. #16, at 6 n.3.

Upon the transfer to this Court, Pardo amended his complaint, bringing Mecum Auction back into the case. The amended complaint omitted all of Pardo's common-law fraud and promissory estoppel claims against the Mullises but reasserted the ICFA claim. Although summonses were issued as to the Mullises, they were never served with the amended complaint. Instead, on June 19, 2013, Pardo moved this Court to enter default judgment against the Mullises on the original complaint; he sought $60, 589.38 in compensatory damages, another $60, 589.38 in punitive damages (in effect, double damages), and $24, 532.30 in attorney's fees and costs. Motion, Dkt. # 42.

Before the Court could rule, however, the Mullises appeared and moved to vacate the default. See Appearance & Motion, Dkt. ## 45-46 (July 11, 2013). Shortly thereafter they also moved to dismiss the amended complaint for lack of personal jurisdiction and failure to allege a fraud claim with particularity. See Motion, Dkt. ## 52-53. After all the parties detoured to unsuccessful settlement proceedings, they fully briefed the Mullises' twin motions; the default judgment motion remains pending as well. The Court now concludes, for the reasons explained below, that Pardo is not entitled to a default judgment against the Mullises and, further, that the complaint must be dismissed as to the Mullises for lack of personal jurisdiction and failure to state a claim.

DISCUSSION

A. Motion for Default Judgment and Motion to Vacate Clerk's Entry of Default

Pardo contends that he is entitled to default judgment against the Mullises for their failure to respond to the original complaint (filed in the Eastern District of Pennsylvania), which they deliberately chose to ignore despite having been served. The Mullises argue that default judgment is inappropriate because the underlying default order cannot stand; their motion to dismiss further argues that this Court lacks personal jurisdiction over them. If that is so, the question of vacating the technical default becomes academic, because this Court is not empowered to enter a default judgment against a party over whom it lacks personal jurisdiction.

The Mullises raise three arguments in favor of vacating the clerk's entry default: (1) the default order was voided by the subsequent amendment of the complaint; (2) the default order was void ab initio because the court lacked personal jurisdiction over the Mullises; and (3) there was good cause for the default as required by Federal Rule of Civil Procedure 55(c).

As a threshold issue, see In re LimitNone, LLC, 551 F.3d 572, 577 (7th Cir. 2008), the Court first addresses the personal jurisdiction question. And in the context of the motion to vacate the default order, the specific question is whether the District Court for the Eastern District of Pennsylvania-not this Court-had personal jurisdiction over the Mullises to enter the default order. Pardo concedes, as he should, that "personal jurisdiction is necessary for the entry of the default." Mem., Dkt. # 77 at 5. But he argues that the Pennsylvania court did have jurisdiction and, as support, submits his own affidavit attesting that the Corvette auction was advertised on the Internet, and therefore within Pennsylvania.

The Mullises have the better of the jurisdictional argument. Indeed, although Pardo fails to reckon with it in any way, his argument already was rejected in this case, when he opposed Mecum's motion to dismiss for lack of personal jurisdiction in Pennsylvania. Pardo had more arguments supporting personal jurisdiction over Mecum than he can muster as to the Mullises, [1] and still he failed to meet his burden because the ties to Pennsylvania were so slight. In granting Mecum's motion, Judge Pratter specifically rejected a national marketing campaign as a hook for personal jurisdiction. Mem. Op., Dkt. # 17 at 4. Pardo is effectively asking this Court to overrule Judge Pratter on the issue of personal jurisdiction; although Judge Pratter was assessing a different defendant, her reasoning applies with even greater force to the Mullises, who have an even slighter connection to Pennsylvania.

Judge Pratter had it just right. This case has nothing to with Pennsylvania. The original complaint, upon which the Rule 55(a) order of default was entered, alleges absolutely no connection to Pennsylvania. No party resides there, and no part of the sale of the car took place there. Mecum's auction occurred in Illinois. The Mullises live in Florida; according to the pleadings, they also have ties to North Carolina, but none whatsoever to Pennsylvania. Pardo's affidavit, which he argues creates an issue of fact as to the existence of personal jurisdiction, does not help him. All it does is describe his own web browsing activities (which did not occur in Pennsylvania); Mr. Pardo does not claim to possess any personal knowledge about who is responsible for the advertising he viewed, and he does not claim to have been lured either to or from Pennsylvania by that advertising. There is no basis in the complaint or the affidavit on which to infer that the Mullises-as distinct from other defendants-deliberately targeted or exploited the Pennsylvania market (even assuming they were the sellers, as alleged). See be2LLC v. Ivanov, 642 F.3d 555, 559 (7th Cir. 2011). There is the possibility that someone in Pennsylvania might have viewed information about William Mullis's Corvette collection or the Mecum auction of Corvettes on the Internet, but there is no suggestion that any of the allegedly fraudulent acts such as tampering with the Corvette's appearance occurred in Pennsylvania or that Pennsylvania consumers were targeted with advertising of the auction.

Pennsylvania's long-arm statute, like most, allows the exercise of personal jurisdiction over defendants in cases arising from the certain enumerated acts and to the full extent permitted by the Constitution-which is to say, when the requisite "minimum contacts" are present. 42 Pa.C.S.A. ยง 5322(a)-(b); see Kehm Oil Co. v. Texaco, Inc., 537 F.3d 290, 299-300(3d. Cir. 2008). Given the lack of ties between the facts of this case and Pennsylvania, Pennsylvania's long-arm statute does not vest that state's courts with personal jurisdiction over the Mullises. Accordingly, service of process on the Mullises did not establish personal jurisdiction; under Federal Rule of Civil Procedure 4(k)(1), personal jurisdiction is established by service of process only where, as relevant here, the defendant is "subject to the jurisdiction in the state where the district court is located." The Mullises were not subject to personal jurisdiction in Pennsylvania, so Rule 4(k)(1) does not apply.

It is clear enough that a default judgment entered against a party over whom the court lacks personal jurisdiction is void, and entering judgment under those circumstances-or failing to vacate it once the problem is raised-is a per se abuse of the court's discretion. be2 LLC, 642 F.3d at 557; Relational, LLC v. Hodges, 627 F.3d 668, 671 (7th Cir. 2010). Less clear is whether the Mullises preserved their right to rely on this defense. After all, the lack of personal jurisdiction is an affirmative defense, which, unlike subject matter jurisdiction, can be waived if not asserted. See Fed.R.Civ.P. 12(h) (the defense of lack of personal jurisdiction is waived if not timely raised in a Rule 12(b)(2) motion or in the first responsive pleading); Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 704 (1982). And here, the Mullises, ...


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